We have gone from being the world’s largest creditor nation, with no foreign debt at the end of World War II, to the world’s largest debtor, with roughly half of our public debt held by foreign lenders. Over the last four years, our national debt has grown by more than $5 trillion to over $16 trillion. We have to service that debt. The Federal Reserve is keeping rates historically low but here’s the cost of paying interest on the debt for fiscal 2012: $359,796,008,919…

Our federal balance sheet does not include the unfunded social insurance obligations of Medicare, Social Security, and the future retirement benefits of federal employees. Only in the small print of the financial statements do you get some idea of the enormous size of the unfunded commitments. Today the estimated unfunded total is more than $87 trillion, or 550 percent of our GDP. And the debt per household is more than 10 times the median family income.

The public doesn’t know about these awesome liabilities because the totals appear only in actuarial estimates. As Chris Cox, former chairman of the Securities and Exchange Commission, and Bill Archer, former chairman of the House Ways and Means Committee, recently noted in the Wall Street Journal, the real annual accrued expense of Medicare and Social Security alone is $7 trillion. The government’s balance sheet does not include any of these unfunded obligations…

100 percent of the payroll taxes for Social Security and Medicare are spent in the year that they are collected, leaving no leftovers for the unfunded obligations. And this doesn’t take into account other risks, hardly minimal, like the fact that the Federal Housing Authority confronts a $16.3 billion net deficit after its latest audit that may force a taxpayer bailout for the first time in its 78-year history. And just four years from now, in 2016, the Disability Insurance trust fund will be fully depleted.

The fiscall cliff is not looming, as Robert Samuelson also said a year ago. We’re at the botom of the raving and the $16 trillion of debt that’s falling on the kids and grandkids is the least of our worries.

One Response to “Not a definition of responsibility or sanity”

Mr. Zuckerman is spot on, but just a bit optimistic when he says above “in just four years, by 2016, the Disability Insurance trust fund will be fully depleted”.

For the record, the trust funds are political accounting tricks. Our politicians created something shiny to look at, implying that there are savings to rely on, at least somewhat. But, there are no savings; it is a sham.

The following refers to the Social Security Trust Fund, but applies equally to all Treasury trust funds. The name “trust fund” has a particular, misleading, political meaning. There are no assets in these “funds” other than a promise from the treasury.

The bonds in the Social Security Trust Fund are promises, not assets. They are similar to other government bonds, which are also promises but not assets. I say similar, because those bonds are only political promises, and their claim on Treasury assets is only politically enforceable, not legally enforceable.

The taxing power of the government is in doubt. The promises of the government are so large that it may not be able to pay back the debts which the bonds represent, including the bonds in the Social Security and other “funds”. The bonds are a promise, but they don’t help to pay for themselves.

Don’t take my word for it. Here is a statement by the Congressional Budget Office – October 2002 [edited from the Summary]:
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The money that the government owes to itself has no impact on the economy because it represents debt owed from one Treasury account to another, mostly held in federal trust funds.

Trust fund holdings are not assets of the government and do not represent money owed to program recipients individually. Payments to Social Security recipients (like other social insurance programs) are based on rules set by law unrelated to trust fund holdings.

A federal trust fund is an accounting device that measures the difference between the income designated for a program and the expenditures made to its beneficiaries. The accumulated balance often represents the future “spending authority” for the program, but it is not a reserve of money for making payments.
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So, it is just as hard to meet the promises of Social Security as any other promise made by our government. Those promises are backed only by current tax revenue. There are no savings. The amounts represented by the social security trust fund “surplus” were collected and spent long ago. The trust fund bonds are only a note from the government to itself, to find the money somewhere in the future.